Philippines - Industrial Restructuring Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15265 TIPLEMENTATION COMPLETION REPORT REPUBLIC OF THE PHILIPPINES INDUSTRIAL RESTRUCTURING PROJECT (LOAN 3287-PH) DECEMBER 29, 1995 Country Operations Division Country Department I East Asia & Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CUIRRENCY EQUIVALENTS Average Jan -Jun 1995 US$1.0 = Pesos 25.5 Average Jan - Dec 1994 US$1.0 Pesos 26.9 Average Jan - Dec 1993 US$1.0 = Pesos 27. 1 Avera-e Jan - Dec 1992 USS 1 .0 Pesos 25 5 Average Jan - Dec 1991 US$1 0 Pesos 27.' ;Aver-age Jan - Dec 1990 IS$1 0 P Pesos 24 3 FISCAL YEAR January I to December 3 1 ABBREVIATIONS AND ACRONYMS BITS - Swedish A(gency for Intermational Technilcal and Economic Cooperatioll BSP/CBP - Bangko Sentral ng Pilipinas"Central Bank of the Philippines DBP - Development Bank of the Philippines DENR - Department of Environment and Natural Resources DOF - Department of Finance '(CAs - Export Credit Agencies 1: MB - Environmental Management Bureau LV XCF L - Export Credit Enhanced Leverage Program FS .<AL, - Financial Sector Adjustment Loan GFIs - Government-owned Financial Lnstitutions GOP - Govemment of the l'hilippines JGF - Japanese Grant Facilitv ICR - Implementation Completion Report IICP - Industrial Investmenit Credit Project IDP - Institutional Development Program IRP - Industrial Restructurin,g Project IRUI RRC - Industrial Restructuring Unit/Industrial Restructuringy and Research Center NDF - Nordic Development Fund NORAD - Norweigian Agency for Intemnational Development PFis - Participating Financial Institutions TTA - Training and Technical Assistance  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT PHILIPPINES INDUSTRIAL RESTRUCTURING PROJECT (LOAN 3287-PH) Table of Contents PREFACE EVALUATION SUMMARY ................ ............................ PART I. PROJECT IMPLEMENTATION ASSESSMENT ......................................... I A. INTRODUCTION . B. STATEMENT/EVALUATION OF OBJECTIVES. I C. ACHIEVEMENT OF OBJECTIVES. 3 D. MAJOR FACToRs AFFECTING THE PROJECT. 7 E. PROJECT SUSTAINABILITY. 8 F. BANK PERFORMANCE. 8 G. BORROWER PERFORMANCE. 9 H. ASSESSMENT OF OUTCOE. 9 1. KEY LESSONS LEARNED .1 0 PART II. STATISTICAL ANNNE)XES TABLE I SUMMARY OF ASSESS MENTS .11 TABLE 2 RELATED BANK LOANS. 1 2 TABLE 3 PROJFCT TIMETABLE. 1 3 TABLE 4 LOAN DISBURSEMENTS 14 TABLE 5 KEY INDICATORS FOR PROJECT OPERATION AND IMPLEMENTATION. 1 5 TABLE 6 STUDIES INCLUDED IN THE PROJECT .16 TABLE 7A PROJECT COSTS ..................................................... 17 TABLE 7B PROJECT FINANCING ..................................................... 18 TABLE 7C INDUSTRY SUB-SECTOR DIST. OF PROJECTS FINANCED ......................... 1 9 TABLE 7D FINANCED PROJECTS DISTRIBUTION TO PFIS ......................................... 20 TABLE 8A DBP BALANCE SHEETS .................. ................................... 21 TABLE 8B DBP INCOME STATEMENTS ..................................................... 22 TABLE 9 STATUS OF LEGAL DOCUMENTS ................................ ..................... 23 TABLE 10 BANK RESOuRCES: STAFF INPUTS ..................................................... 24 TABLE II BANK RESOUJRCES: MISSIONS ..................................................... 25 PART III. BORROWER'S CONTRIBUTION ..................................................... 26 This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization. I   LJlNl. I1 Jlt IMPLEMENTATION COMPLETION REPORT PHILIPPINES INDUSTRIAL RESTRUCTURING PROJECT (LOAN 3287-PH) PREFACE This is the Implementation Completion Report (ICR) for the Industrial Restructuring Project in the Philippines (IRP) for which Loan 3287-PH in the amount of US$175.0 million equivalent was approved on January 8, 1991 and made effective on April 16, 1991. The loan was fully disbursed and closed on February 28, 1995 compared with the original closing date of December 31, 1997. The loan was cofinanced by export credits under the Bank's Export Credit Enhanced Leverage Program (EXCEL) facility, but this facility was not used. Besides the term credit, IRP has a Training and Technical Assistance (TTA) component that was cofinanced by grants/soft loans amounting to approximately US$13.0 million from the Norwegian Agency for International Development (NORAD), Nordic Development Fund (NDF), and Swedish Agency for International Technical and Economic Cooperation (BITS). In addition, IRP carried on the TTA program initiated under the Industrial Investment Credit Project (Loan 3123-PH, 1989) and cofinanced under the Japanese Grant Facility (TF2462-0 PH) in the total amount of Yen 470.0 million. The ICR was prepared by Mr. Vinod Prakash (Consultant), Country Operations Division, East Asia & Pacific Region (EAICO). It was reviewed by Mr. Khalid Siraj of Private/Public Sector & Technology Development Division (Chief, ASTTP), Ms. Pamela Cox (Chief, EA l CO) and Mr. Walter Schwermer (Project Adviser, EAIDR). The borrower, Development Bank of the Philippines (DBP), and cofinanciers provided comments that are included as appendixes to the ICR. Preparation of this ICR was initiated during the Bank's last supervision/completion mission led by Mr. Ismail Dalla (EAICO) in July 1995. It is based on material in the project file, supplemented by staff interviews. The borrower contributed to the preparation of the ICR by regularly providing the project progress/status reports, contributing its views during the missions, preparing own evaluation of the project's execution and commenting on the draft ICR.   IMPLEMENTATION COMPLETION REPORT PHILIPPINES INDUSTRIAL RESTRUCTURING PROJECT (LOAN 3287-PH) EVALUATION SUMMARY INTRODUCTION 1. Bank support for the Industrial Restructuring Project (IRP, Loan 3287-PH) was consistent with its country assistance strategy of helping the Philippines during the late 1 980s to sustain economic recovery and bring about a structural transformation of the economy through major policy reforms. The Bank was committed to assisting the Government of the Philippines (GOP) maintain a reasonable and sustainable rate of growth in the industrial sector over the medium to long-term, and supported GOP's financial, industrial and trade policy reforms. In this context, Bank's prior involvement in two projects is of particular relevance: (a) the Financial Sector Adjustment Loan (FSAL, Loan 3049-PH) which was successful in strengthening the Philippines' financial system; and (b) the Industrial Investment Credit Project (IICP, Loan 3123-PH) which helped the Development Bank of the Philippines (DBP) transform into a predominantly wholesale bank, and supported the comprehensive, in-depth subsector studies needed for an effective implementation of the industrial restructuring (para. 2). PROJECT OBJECTIVES 2. Project objectives were to: (a) support the revival and the strengthening of the industrial sector; (b) support sound industrial investment in subsectors free from major distortions resulting from inappropriate trade and regulatory policies; (c) help make the cement, pulp & paper, textiles, shipping and ship repairs subsectors more competitive through reforms of subsector-specific policies, training and technical assistance, and institutional straightening; (d) strengthen the institutional framework for environmental protection; and (e) strengthpn DBP's capacity to play a more active role in the development of the capital market and to act as a wholesale bank channeling term funds to retail financial institutions (para. 3). 3. The project included the following components: (a) a credit line of US$175.0 million to DBP for onlending to private sector enterprises through accredited participating financial institutions (PFIs). This credit line was to be supplemented by export credits worth about US$75.0 million under the Bank's Export Credit Enhanced Leverage Program (EXCEL) cofinancing facility. (b) training and technical assistance (TTA) for selected subsectors and environmental protection was targeted at five capital-intensive subsectors: cement, pulp & paper, textiles, shipping and ship repairs. For this reason, cofinancing arrangements were to be made under bilateral grants and soft loans worth approximately US$15.0 million. (c) subsector studies initiated under IICP and cofinanced through the Japanese Grant Facility were to be carried out to facilitate restructuring of other priority subsectors (para. 4). 4. Evaluation of Objectives. Both financial and physical restructuring, and environmental protection components were integral part of the industrial investment program. The project was demanding and complex  - 11 - for the borrower, particularly regarding the institutional development program (IDP), which had to be responsive to changing economic and political realities, and yet any significant changes in it had to be approved by the Bank (para. 5). IMPLEMENTATION EXPERIENCE AND RESUILTS 5. Industrial and Trade Policy Reforms. Overall, the project achieved its objectives of facilitating industrial and trade policy reforms by providing technical assistance and financial support, along with measures to protect the physical environment. Specifically, the project accomplished its objectives of removing some quantitative import restrictions, reducing effective protection, eliminating price controls and lifting administrative barriers to entry (para. 7). SuPPortinsg the Revival of Industry through Sound Investment. The loan financed 76 private business enterprises covering a wide range of industries and involving 34 PFIs. THe project has significantly contributed to cost reductions, environmental protection, and the international competitiveness of the Philippine industry (para. 8). Training Program. Overall, the TTA program has been highly successful. The training program for the cement subsector is being implemented by two leading business houses under a soft loan of US$4.0 million granted by NDF. Similarly, the training program for the pulp & paper subsector has been implemented by the Pulp and Paper ManufactLrers' Association, under a grant of SEK 10.9 million from BITS. For the shipping and ship repairs subsectors, the program is being implemented by DBP in cooperation with the two shipping associations Linder a grant of NOK 35.0 million from NORAD (para. 9). Subsector Studies. Under the IICP, the first batch of studies related to the above five subsectors (Phase 1) was conducted. Following this, a thorough review of the manufacturing sector was undertaken and completed by a consortium of consultants (July 1994). This review led to the identification of eight priority subsectors for in-depth study. which were completed under Phase 11 of the IRP (para. 10). Environmental Protection. The TTA for strengthening the institutional infrastructure for environmental protection was funded by a grant of SEK 10.5 million from BITS. Led by DBP's proactive approach, implementation has been hiighly successful in strengthening DBP as well as the Environmental Management Bureau (EMB) and its regional offices (para. 11). 6. DBP's Institutional Development Progress. From the perspective of institutional development, DBP's overall progress has been impressive; however, DBP management still needs to address the following key issues. First, while DBP has been transformed into a predominately wholesale institution, privatization of retail operations has not materialized as yet. Second, although DBP's overall loan portfolio is satisfactory, the quality of DBP's retail portfolio is a source of concern, therefore DBP needs to initiate urgent internal actions to arrest and reverse the portfolio deterioration. Third, while DBP has been recycling second generation funds (under IRP, IICP etc.) at a reasonable margin, a major effort is needed to bolster its medium- to long-term resource position to a sustainable level. Finally, since DBP's portfolio is dominated by wholesale operations generally carrying low margins, the success of such operations requires high volume and minimal overheads. As a result, the recent sharp increase in direct personnel costs requires DBP Inanagement attention (para. 12). 7. Key Factors that Affected Achievements. Making the EXCEL cofinancing facility operational was time consuming because of the involvement of several participants. DBP had concluded agreements with four ECAs, but these credit lines, amounting to an aggregate of about US$65.0 million, remained unused mainly due to their unattractive terms and conditions. DBP's wholesale banking strategy and privatization of its retail  - 111 - operations were important from the perspective of strengthening the Philippines' financial system. DBP has succeeded in wholesale banking but not in privatization. In response to the government's directive, DBP has proposed a new strategy for its future development (paras. 13. 14). 8. Sustainability. The prospects of sustainable institutional development of DBP and of IRP's long- term development impact are promising. DBP has been acclaimed as a well established wholesale bank. Moreover, as a facilitator for private sector development, it has been providing term credit through PFIs. In addition, DBP's proposed strategy reflects prudent thinking, but the FRank's continued support appears crucial for its effective realization. The benefits of the subprojects and the training program are also likely to be sustainable (para. 15). 9. Bank and Borrower Performaaces. The Bank was diligent in allowing time for mobilizing resources for the identification and preparation of the project. Overall, Bank supervision was satisfactory. The project experienced problems regarding DBP's apparent non-adherence to covenants concerning its Institutional Development Program (IDP), Policy Statement and modality of privatization. Resolution of this situation required full confidence and mutual respect between the Bank and DBP. and flexibility by Bank staff in suggesting or approving the needed modifications. The Borrower's perfonnance was also satisfactory throughout the project period. As the key implementing agency of the IICP, DBP was already actively involved in the subsector studies that laid the solid foundation of the IRP. In addition, DBP administered the project well and with great enthusiasm (paras. 17-19). 10. Assessment of Outcome. The project has achieved or exceeded almost all of its major objectives. and is likely to have a substantial development impact in the future. Overall, project implementation has been very impressive. Institutional development also has been satisfactory, notwithstanding the major changes in DBP's priorities that led to the formulation of an institutional development strategy that differed from the original one (para. 20). SUMMARY OF FINDINGS AND KEY LESSONS LEARNED 11. Key findings and lessons learned from the implementation of the project are summarized as follows (para. 21): (a) Successful private sector development ;nvolving industrial restructuring requires adequate lead time, financial resources, technical expertise, and motivated institutions to conduct and supervise comprehensive, in-depth studies. Also, effective implementation of such studies requires that the government has a firm commitment to creating a conducive policy environment: (b) The availability of cofinancing funds does not imply that these funds will be utilized, unless they are offered with attractive terms; (c) A Government-owned Financial Institution (GFI) can be an efficient and cost effective vehicle to bolster private sector and human resource development; (d) A proactive and farsighted financial institution such as DBP can succeed in lending and institutional strenthening for environmental protection; (e) While it may be desirable for the institutional development progress of a GFI to maintain a tight time schedule, due allowance should be given to the socio-political and external factors that can warrant changes in government priorities and in a GFI's IDP.   IMPLEMENTATION COMPLETION REPORT PHILIPPINES INDUSTRIAL RESTRUCTURING PROJECT (LOAN 3287-PH) PART I: IMPLEMENTATION ASSESSMENT A. INTRODUCTION 1 Bank support for the Industrial Restructuring Project (IRP, Loan 3287-PH) was consistent with the country assistance strategy, which focused on helping the Philippines (during the late 1 980s) to sustain economic recovery and bring about a structural transformation of thL economy through major policy reforms. The Bank was committed to assisting the GOP to maintain a reasonable and sustainable rate of growth in the industrial sector, over the medium to long-term. With the support of the Bank, the GOP designed and implemented major industrial and trade policy reforms aimed at increasing economic efficiency and stimulating private sector initiatives, and major financial sector reforms aimed at rehabilitating government-owned financial institutions (GFIs), including the Development Bank of the Philippines (DBP) which was insolvent and caused a serious drain on the government budget. (See Table 2 for related Bank loans). 2. The Bank worked closely with the Bangko Sentral ng Pilipinas (BSP) and the Department of Finance (DOF) to develop a program of financial sector adjustment, leading to the Financial Sector Adjustment Loan (FSAL, Ln. 3049-PH). This program, articulated by the GOP, included a reorientation of DBP from a retail lending institution to a predominantly wholesale bank. In its continued support for institution building, the Bank premised the Industrial Investment Credit Project (IICP) on the understanding that DBP would be transformed into a predominantly wholesale bank both through an increase in wholesale lending and through the privatization of most of its retail branches. The IICP was also designed to finance subsector studies, which provided an excellent basis for the formulation of a detailed Action Program for restructuring the industrial sector. The continuing constructive dialogue and close collaboration between the GOP and the Bank led to the design of the IRP to facilitate implementation of the financial, industrial and trade policy reforms in the Philippines, and also contributed to boosting the private sector, protecting the physical environment, and developing human resources. B. STATEMENT/EVALUATION OF OBJECTIVES 3. Project Objectives. The project was designed to: (a) support the revival and strengthening of the industrial sector; (b) support sound industrial investment in subsectors free from major distortions resulting from inappropriate trade and regulatory policies; (c)  - 2 - help make the cement, pulp & paper, textiles, shipping and ship repairs subsectors more competitive through reforms of subsector-specific policies, training and technical assistance (TTA), and institutional strengthening; (d) strengthen the institutional framework for environmental protection; and, (e) strengthen DBP's capacity to play a more active role in the development of the capital market, and to act as a wholesale bank channeling term funds to retail financial institutions. 4. To achieve these objectives, the following components were defined: (a) A Credit Line of US$175.0 million to DBP was established for onlending to private sector enterprises through accredited participating financial institutions (PFIs) for purchasing or leasing equipment and financing permanent working capital, including investments in energy conservation and pollution control devices. To achieve the object.ve of supporting only efficient and sound investments, no funding was provided for projects in subsectors that had quantitative restrictions, excessive tariff protection, price controls, or administrative barriers to entry. This credit line was to be supplemented by export credits worth about US$75.0 million under the Bank's Export Credit Enhanced Leverage Program (EXCEL) cofinancing facility. (b) Training and Technical Assistance (TTA) for selected subsectors and environmental protection was targeted at five capital-intensive subsectors: cement, pulp & paper, textiles, and shipping and ship repairs. The TTA aimed to: (i) strengthen institutional and training facilities for these subsectors; (ii) assist enterprises in the identification, analysis, and appraisal of restructuring investments, and in the design of least cost pollution control components compatible with prevailing standards; and, (iii) support the Environmental Management Bureau (EMB) at the Department of Environment and Natural Resources (DENR) to improve its capacity to carry out industrial environmental audits and develop generic Environmental Impact Assessments (EIAs). For this purpose, cofinancing arrangements were made under bilateral grants and soft loans worth approximately US$15.0 million, administered by DBP. (c) Subsector Studies initiated under the IICP and cofinanced through the Japanese Grant Facility (administered by the Bank and executed by DBP) were undertaken in order to facilitate restructuring of other priority subsectors. 5. Re-evaluation of Objectives. The project objectives were well defined and understood by both the Borrower (DBP) and the Bank. These objectives were instrumental in the implementation of GOP's financial, industrial and trade policy reforms. The project was, therefore, timely and fell in line with the Bank's country assistance strategy. Both financial and physical restructuring, as well as environmental protection, were integral parts of the industrial investment program. The project was demanding and  - 3 - complex, particularly regarding its institutional development program (IDP). The IDP had to be responsive to the changing economic and political realities in the country as well as to the dynamics of the global financial market, and yet any significant changes in it had to be approved by the Bank, As such, an intensive interactive dialogue and close cooperation between the DBP and the Bank were crucial to the project's overall success. Notwithstanding the inevitable uncertainty of the state of the Philippine economy and the competing demands on DBP to act as a catalyst in a number of priority areas, the project risks were minimal and worth taking. C. ACHIEVEMENT OF OBJECTIVES 6. Overall Achievements. Overall, the project achieved its main objectives. The DBP succeeded in the transfer of term credit in a much shorter period and with greater economic and environmental impacts than expected at the time of loan approval (Table 4). Further, DBP's proficient management of the TTA led to the timely and efficient implementation of both the subsector training courses and the environmental protection program. Though the textiles subsector was unable to use the TTA, the Action Program for restructuring the cement, pulp & paper, inter-island shipping, and ship repairs subsectors are being implemented by the respective trade associations, industrial enterprises, and training institutions. Moreover, DBP continued to make good progress toward achieving the objectives of its restructuring program initiated during the mid- 1 980s. The DBP has earned the reputation of being a professionally managed development bank, significantly contributing to the financial and industrial development of the country in partnership with the private sector. However, a few areas require DBP management attention in order to further strengthen the institution (paras. 12, 14, 15). 7. Industrial and Trade Policy Reforms. The project succeeded in its objective of facilitating the ongoing industrial and trade policy reforms by providing much needed technical assistance and financial support, along with the measures to protect the physical environment. The more liberal policy environment envisaged by the GOP needed both financial and physical restructuring that would have enabled firms to improve efficiency and international competitiveness. In this context, a subsector approach was most appropriate and it was effectively followed through both the IICP and the IRP. As a further inducement to encourage only efficient and sound investments, IRP barred access to the credit line by the five major subsectors that were capital-intensive, had unreasonably high energy intensity of production, high wastage rates of raw materials, high plant maintenance costs, low labor productivity and suboptimal scales of operations. As a result of the concerted efforts of the GOP, DBP, PFIs, industry associations, and other agencies, the Bank's key concerns regarding the policy environment were quickly addressed and the Bank removed this restriction before end-1991. Thus, the project quickly accomplished its objectives of removing quantitative import restrictions, reducing effective protection, eliminating price controls and lifting administrative barriers to entry, and thereby succeeded in stimulating private sector development.  - 4 - 8. Supporting Revival of Industry through Sound Investment. The loan amount of US$175.0 million was disbursed through 34 PFIs by June 1995. It financed 76 private business enterprises covering a wide range of industries, including: food and food products, accounting for 29% of the total loan amount approved (25% by number); non- metallic mineral products (including cement) for 13% (9%); transportation, storage and communications for 10% (9%); and miscellaneous manufacturing for 10% (12%). Commercial banks, with a 70% share in the total loan amount, were the most active participants in the project, followed by leasing & finance companies (16%), and specialized government banks (12%). In terms of the regional dispersal of investments, the National Capital Region accounted for 28%, followed by Southern Luzon (23%) and Central Luzon (19%). There are several indications that the project has significantly contributed to cost reductions, environmental protection, and increased international competitiveness of the Philippine industry, as apparent from the last mission's anecdotal findings: (a) a cement plant reduced electricity consumption by 24%, dust emissions by 80%, and increased production capacity by 20%; (b) by modernizing its laundry plant, a sportswear corporation succeeded in exporting denim pants to the U.S. market; and (c) a paper plant reduced water consumption by 68%, electricity consumption by 25%, and increased production capacity by 22%. 9 Training Program. The TTA program for the cement subsector is being implemented by two leading business houses (PHENMA and ICC) under a soft loan of US$4.0 million granted by NDF. PHINMA, known for its highly regarded human development programs, is building a full-service, fully equipped training center that is expected to be operational by November 1996. ICC has already completed its training center and has conducted several training courses. Both these facilities are available for the entire industry. The TTA program for the pulp & paper subsector has been implemented by the Pulp and Paper Manufacturers' Association under a grant of SEK 10.9 million from BITS. To date, 11 technical courses have been conducted, including three overseas. The rest of the courses were conducted at two training centers in the Philippines with about 550 participants, who commended and valued the program. The TTA program for the shipping and ship repairs subsectors is being implemented by DBP in cooperation with the Philippine Inter-island Shipping Association and the Philippine Shipbuilders and Repairers Association (with a Norwegian Consultant) under a grant of NOK 35.0 million from NORAD. The program was comprehensive and detailed, and consisted of seminars, workshops, training courses and study tours that were conducted at the company and subsector levels, as well as for policy and regulatory agencies. This program was so successful that DBP is seeking its extension (additional grant equivalent of US$2.5 million) and supplementary credit facility (equivalent of US$50.0 million) to support the modernization of domestic shipping. 10. Subsector Studies. Having completed the first batch of studies related to the above-mentioned five subsectors (Phase I) under the IICP, a comprehensive review of the manufacturing sector was conducted. This review was completed in July 1994, and led to the identification of eight priority subsectors for in-depth study, which was completed  - 5 - under Phase II' of the IRP. These studies were supervised by an Inter-Agency Working Group (IWG). In May 1995, the IWG delineated action plans among various agencies and identified the need for a 'bridging phase" consultancy to translate the new concepts and the restructuring programs into concrete actions. This work is expected to be completed by December 1995. 11. Environmental Protection. The TTA for strengthening the institutional infrastructure for environmental protection was funded under Phases I and II under a total grant of SEK 10.5 million from BITS, administered by DBP. Led by DBP's proactive and synergetic approach, the implementation of this TTA has been exemplary and highly successful in the strengthening of DBP as well as of the Environmental Management Bureau (EMB) and its regional offices (the functional arm of the Department of Environment and Natural Resources (DENR)). The EMB-DENR, DBP, and other selected industries developed an Environmental Management Plan (EMP) that would act as an enabling mechanism to support industry's compliance with environmental standards. This cooperation initially focused on an all-round strengthening of the EMB-DENR, the effectiveness of which has been widely praised. The environmental TTA has also led to: (a) the introduction of environmental impact audits (EIA) and emphasis on the importance of self monitoring by industries; (b) dramatic changes in the attitudes of private industrial enterprises and their associations, thereby bridging the gap between industry and EMB, (c) conclusion of a Memorandum of Agreement among EMB, DBP and six industry associations (cement, pulp & paper, ship repairs, textiles, metal fabrication, and semiconductors) to address environmental issues and undertake concrete actions; (d) establishment of self-monitoring programs at four pilot industrial plants, leading to the demand for similar programs at many other plants; (e) installation of a prototype environmental data base in four subsectors at DBP; and (f) request to BITS for additional support to broaden subsector coverage and lend resources for environmental protection. 12. DBP's Institutional Development Progress. From the perspective of its institutional development, DBP's overall progress has been impressive. For continued success in significantly contributing to the country's economy, however, DBP management needs to address several remaining issues. The key aspects of DBP's progress and these issues are outlined below: (a) Wholesale Banking. DBP has been transformed from a large multisector retail banking institution into a predominantly wholesale institution. The share of wholesale lending in DBP's outstanding portfolio increased from 12% in 1990 to 64% in 1994, and this share is expected to remain stable at around 65% during the ] 990s (provided the status quo assumptions remain valid). However, the entire amount of this increase was realized through an increase in wholesale operations, as privatization of retail operations did The eight recommended and approved prioritv subsectors for restructuring were: canned and preserved fruits and vegetables; canned and preserved fish; cocoa, chocolate and sugar confectionerv; spinning and weaving; wood and wood based products; plastics; fabricated metal products: and electrical and household appliances.  - 6 - not materialize. As a result, this remains a concern (see para. 14). As a wholesale bank, though, DBP was close to the single borrower limit (SBL) for some PFIs. Since this limit could be prudently lifted from the present 15% of net worth to 25%, this constraint can be alleviated without affecting DBP's financial soundness. (b) Loan Portfolio. Currently, the performance of DBP's overall loan portfolio is satisfactory and its wholesale portfolio has no non-performing loans. The ICR mission was informed that even the PFIs' portfolio under the IRP are current. While this is noteworthy, the quality of DBP's retail portfolio is a source of concern and, therefore, DBP needs to initiate urgent internal actions to arrest and reverse the portfolio deterioration. (c) Resource Mobilization. Thus far, DBP has moAtly relied on official sources (e.g. IBRD, ADB, OECF) for financing its wholesale banking. Though DBP raised US$175.0 million through a EuroBond issue in 1993, in the absence of foreign exchange risk coverage by the government, DBP was facing difficulties in onlending these funds at profitable terms to the private sector. While DBP has been recycling the second generation funds under various projects at a reasonable margin, a major effort is needed to bolster its medium/long-term resource position to a sustainable level. One option would be for DBP to issue its own financial instruments in the domestic market. (d) Financial Performance. DBP's financial performance continues to be satisfactory, although the recent rapid growth in its assets---more than tripling between 1990-93--- is unlikely to continue. DBP's debt-equity ratios and return on equity are also satisfactory. Since DBP's portfolio is dominated by wholesale operations generally carrying low margins, the success of these operations requires high volume and minimal overheads. In this respect, the recent sharp increase in administrative expenses (especially in direct personnel costs) requires DBP management attention. (Tables 8A, 8B). (e) Future Role and Strategy. Since its major restructuring DBP has made substantial progress and has now become an important supporter of private sector development. DBP's future role is evidenced by its presently evolving strategy, including the BSP Monetary Board's recent approval of its unibanking license. This approval opens up a new vista for DBP, and aside from its success in mobilizing resources for wholesale banking and privatizing its retail banking, DBP needs to develop investment and merchant banking operations. Further, if DBP is exempted from the Salary Standardization Law applicable to government institutions (under the Amended Charter), it will pave the way for DBP to become a more efficient development institution by attracting the highly specialized staff  - 7 - required for it to be a leader in developing the capital market, and by preventing the exodus of hired talents to private sector. D. MAJOR FACTORS AFFECTING THE PROJECT 13. Factors Not Generally Subject to Government Control. Making the EXCEL cofinancing facility operational was time consuming because of the involvement of several participants: DBP, Participating Financial Institutions (PFI), BSP, Export Credit Agencies (ECA), and the Bank. The legitimate discontinuance of the '"omfort letters" from the BSP regarding the availability of foreign exchange (resulting from the country's financial sector reforms) contributed to the delay in the finalization of EXCEL agreements. Yet DBP concluded agreements between June 1992-March 1993, with four ECAs belonging to Switzerland, Japan, Netherlands, and the Republic of Korea. These credit lines, amounting to an aggregate of about US$65.0 million, had been open for one to two years; but remained unused despite vigorous marketing efforts (Table 9). Though an overall downturn in the Philippine economy led to a general decline in loan demand, the main reason for the lack of interest in using these credit lines was mostly due to their unattractive terms and conditions: (a) as tied loans, they were often more expensive than untied loans; (b) loans were denominated in foreign currencies, with most borrowers unwilling to assume the foreign exchange risk; (c) DBP's onlending rates to the PFIs were high due to the required adequate coverage of the foreign exchange risk; (d) while other credit lines allowed reimbursement of the expenditures made within a 90-180 day period, the EXCEL facility did not permit opening of Letters of Credit (LC) prior to approval; (e) the grace period was limited to a maximum of only six months; and (f) permanent working capital was not eligible for financing. 14. Factors Generally Subject to Government Control. DBP's wholesale banking strategy and privatization of its retail operations were agreed between the Bank and DBP, since this reformation was considered to be of utmost importance from the perspective of strengthening the Philippines' financial system. Though wholesale banking, per se, made impressive strides, the privatization scheme continued to face a series of problems. This culminated in the formal opinions of the Department of Justice and the Commission on Audit, and left no options for achieving this objective except through an amendment to the DBP's Charter (which would require legislative action and presidential approval). Since as a GFI, the DBP is expected to respond to the country's changing socio-economic and political conditions as assessed by the government, and the Charter is a long-term instrument, DBP has proposed a new strategy for its future development and has accordingly drafted a new Charter, IDP, and Policy Statement reflecting the latest thinking. These drafts have incorporated the Bank's comments, but DBP still needs to develop an action plan to facilitate achievement of these objectives2. 2 In its review of the ICR, the DBP noted that it does not consider privatization efforts as a shortcoming, with regard to assessing the project's success.  - 8 - E. PROJECT SUSTAINABILITY 15. The prospects of sustainable institutional development in DBP and of the IRP's long-term development impact (including environmental protection and human resource development) are promising. DBP has earned the reputation of a well-established wholesale bank providing term credit through PFIs, and serving effectively and efficiently as an Apex institution. The recent approval of DBP's application for a universal bank license, while retaining its thrift bank privileges, evidences its success as a facilitator of private sector development. The strong likelihood of the approval of proposed major changes in the DBP's charter in the near future further suggests that DBP is expected to play an even more prominent role as a catalyst in the government's efforts, inter alia, to create a more conducive environment for private sector development. DBP's proposed strategy is a step in the right direction, but considerable work is needed to convert this strategy into a plan of action. In this context, the Bank has offered continued technical support, especially to further strengthen DBP in the areas of resource mobilization, commercial viability of branch and retail operations, and developing a human resources strategy and privatization program. 16. The sustainability of benefits of the subprojects and the training programs is difficult to assess, due to a lack of comprehensive information. The information gathered by the ICR mission indicates however, that: there are no arrears in PFIs' relevant portfolio, there is considerable demand for term credit; and, there is an all-round appreciation of the DBP's active role and of EMB-DENR's positive assessment of IRP's implementation. Thus, the benefits are likely to be sustainable. F. BANK PERFORMANCE 17. The Bank was forward thinking in allowing time to mobilize resources for the identification and preparation of the project (Table 6). First, the carefully reviewed five subsector studies led to the articulation of a sound restructuring strategy. Second, an Action Plan was designed for each subsector, which included specific policy actions that were implemented in a timely manner by the GOP. Third, the TTA program for each subsector was meticulously prepared. Finally, the Bank's close collaborative approach led to a quick project appraisal but, in retrospect, did not foresee the rapid developments in the country which influenced DBP's surroundings and constraints in implementing its originally agreed IDP, Policy Statement, etc. Thus, aside from the unanticipated favorable changes in the Philippines' economy, which contributed to the redundancy of the EXCEL cofinancing facility, the project design was ambitious and complex (paras. 3, 4, 5). Moreover, in retrospect, the 90-day limit on reimbursement of eligible expenditures was too restrictive, especially for syndicated loans. Overall, the Bank's supervision was satisfactory, and involved intensive interactive dialogue with regard to DBP's institutional development. Despite the absence of an environmental specialist in supervision missions, the environmental aspects were well addressed (Table 10). 18 Although DBP succeeded in transferring term credit much faster than originally anticipated and efficiently implemented the TTA program, the project ran into serious  - 9 - problems regarding DBP's apparent non-adherence to the covenants concerning its IDP, Policy Statement and modality of privatization (Table 9). The situation was further exacerbated since DBP was expected to play a more vital role in the Philippine economy which, in turn, warranted consideration of major amendments to its Charter; whereas under IRP covenants, the Bank's consent was required for any changes that could "adversely and materially" affect the operations or financial ccndition of DBP. Resolution of this situation required mutual respect between BDP and the Bank, and flexibility by Bank staff in suggesting or approving the needed modifications. The constructive dialogue, initiated before 1991, eventually led to the March 1995 supervision mission, which paved the way for mutually acceptable amendments. The July 1995 supervision/completion mission reinforced the mutual acceptance and allowed for possible future involvement of the Bank in helping DBP to address environmental protection, personnel train;ng and private sector development issues. G. BORROWER PERFORMANCE 19. Borrower performance was satisfactory throughout the project period, notwithstanding some disagreements between the Bank and DBP (para. 18). As the borrower and key implementing agency of the IICP, DBP was already actively involved in the subsector studies that laid the solid foundation of the IRP. DBP administered the entire project (credit and TTA) with great enthusiasm and professionalism, as reflected by the superior quality of its implementation. While maintaining thoroughness in its accreditation process, DBP swiftly expanded its network of PFIs from 23 under the IICP to 76 under the IRP, and successfully disbursed the entire loan amount in four rather than six and a half years (Table 4). Though Bank missions invariably sensed the widespread goodwill, satisfaction, and cordial relationship amid DBP and its partners (PFIs, consultants and industrial enterprises), two qualifications seem relevant. First, there was an oversight in tlhe DBP's IRP brochure (February 1991) where eligible sub-borrower's Filipino ownership was stated to be a minimum 60% (valid for borrowings from the domestic sources), and not 70% as required under the Foreign Borrowing Act. Second, the disbursement mode of direct payment to the supplier ran into difficulties. DBP regularly supplied all reports on time except audit reports, over which it had no control. Finally, the GOP contributed leadership, a commitment to policy reforms as well as prompt implementation of these reforms, and the sustained and noteworthy progress of I)BP. H. ASSESSMENT OF OUTCOME 20. The project has achieved or exceeded almost all its major objectives, and is likely to have a substantial development impact without major shortcomings in the near future. Overall, project implementation has been very impressive. The loan has been fully drawn down about two and a half years prior to the closing date. Excellent progress has been made in the areas of human resources development and environmental protection. In addition, the entire TTA component has been successfully implemented. Institutional development progress also has been satisfactory, notwithstanding the major changes in  - 10 - DBP's priorities that led to the formulation of a different institutional development strategy than that which was originally agreed. The new strategy envisages the eventual privatization of retail lending (including branches), investment banking and real estate operations, and thus, DBP will confine itself primarily to wholesale lending. This strategy is consistent with the objectives of the original DBP restructuring plan, whose ftull implementation has been delayed (Table 1). I. KEY LESSONS LEARNED 21. The most significant lessons learned from the implementation of the project which are relevant for similar projects aimed at boosting the private sector, protecting the physical environment, and developing human resources in a country, are summarized below: (a) Succes,sful private sector development involving industrial restructuring requires adequate lead time, financial resources, technical expertise, and motivated institutions to conduct and supervise comprehensive, in-depth studies; (b) Effective implementation of such studies also requires that the government has a firm commitment to creating a conducive policy environment; (c) The sheer availability of cofinancing funds (e.g. EXCEL facility) does not imply that these funds will be utilized, unless offered with attractive terms; (d) A GFI can be an efficient and cost effective vehicle to bolster private sector and human resource development, (e) A proactive and farsighted financial institution such as DBP can succeed in lending and institutional strengthening for environmental protection; (f) While it may be desirable for the institutional development progress of a GFI to sustain its momentum and, hence, to maintain a tight time schedule, due allowance should be given to the socio-political realities and external exigencies that may warrant changes in government priorities and in a GFI's IDP.  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF THE PHILIPPINES INDUSTRIAL RESTRUCTURING PROJECT (Loan 3287-PH) PART II: STATISTICAL ANNEXES Table 1: Summary of Assessments Table 2: Related Bank Loans Table 3: Project Timetable Table 4: Loan Disbursements Table 5: Key Indicators for Project Operation/Implementation Table 6: Studies Included in the Project Table 7A: Project Costs Table 7B: Project Financing Table 7C: Industry Sub-Sector Disribution.of Projects Financed Table 7D: Financed Projects Distribution to PFIs Table 8A: DBP Balance Sheets Table 8B: DBP Income Statements Table 9: Status of Legal Documents Table 10: Bank Resources: Staff Inputs Table 11: Bank Resources: Missions   Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macro policies =, Sector policies .5a o IFinancial objectives C3i C = Institutional development = = Physical objectives C = C3 Poverty reduction D (jender issues -. Other social objectives = Fiuvironmental objectives I'ublic sector management C = Cl Private sector development J - 3 C3 l luinan resouice development a a 3 3 B. Project Sustainability Likelv Unlikely Uncertain () () () Hiahly C. Bank Performance Satisfactorv Satisfactory Deficient ( J ~~~( ) ( ) idcniification Preparation assistance = Appraisal _ z SUperVIsion Hitthlv D. Borrower Performance Satisfactory Satisfactory Deficient () () () Preparation Implementation Covenant compliance Hiiehlv E. Assessment of Outcome Satisfactory Satisfactorv Deficient () () ()  - 12 - Table 2: Related Bank Loans Year of Loan No. Project Description Approval Status Preceding Operations 1572 3rd Industrial Investment Credit Project 1978 Closed (IICP-III) 1727 2nd Small & Medium Industries Development 1979 Closed Project (SMI-II) 1903 Structural Adjustment Loan (SAL-I) 1980 Closed 1984 Apex Industrial Finance Loan 1981 Closed 2127 Textile Sector Restructuring Project 1982 Closed 2169 3rd Small & Medium Industries Development 1982 Closed Project (SMI-III) 2266 2nd Structural Adjustment Loan (SAL-I1) 1983 Closed 2787 Economic Recovery Program Loan (ERL) 1987 Closed 2956 Reform Program for Government 1988 Closed Corporations (RPGC) 3038 4th Small & Medium Industries Development 1989 Closed Project (SMI-IV) 3049 Financial Sector Adjustment Loan (FSAL) 1989 Closed 3 123 Industrial Investment Credit Project (IICP) 1989 Closed Following Operations 33 12 Cottage Enterprise Finance Project 1991 Inactive 3539 Economic Integration Program Loan (EIL) 1992 Closed Financial Markets Strengthening Project Under Preparation  - 13 - Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual Initial Executive Project Summary Feb. 5, 90 Mar. 29, 90 Final Executive Project Summary Mar. 29, 90 May 21, 90 Appraisal June 90/Sept. 90 5/29/90 - 6/15/90 Negotiations Nov. 90 Nov. 7-14, 90 Operating Policy Guidelines - Nov. 16, 90 Board Presentation 12/90 Jan. 8, 91 Signing - Jan. 23, 91 Effectiveness April 16, 91 Project Completion Dec. 96 Dec. 94 Loan Closing Dec. 97 Feb. 28, 95  - 14 - Table 4: Loan Disbursements: Cumulative Estimated and Actual (US $millions) FY91 FY92 FY93 FY94 FY95 FY96 Appraisal Estimate 7.0 49.0 109.0 142.0 169.0 175 0 Actual 10.0 73.4 144.5 172.9 175.0 175.0 Actual as % of Estimate 143% 150% 133% 122% 104%0 100% Date of Final Disbursement February 27, 1995  - 15 - Table 5: Key Indicators for Project Operation and Implementation Key Operatine Indicators Estimated Actual Loan effectiveness 03/31/91 04/16/91 Project implementation period 81 months 55 months Loan closing 12/31/97 11/30/95 Implementation of Action To facilitate the restructuring AP for all subsectors (except Program (AP) and TTA of subsectors. textiles, which was unable to component. use the TTA) are being implemented. TTA implemented in an efficient and timely manner. Implementation of DBP's To help DBP play a more Overall progress has been Insitutional Development Plan, active role in the impressive. DBP succeeded Policy Statement, Operating development of the capital in the transfer of term credit Policy Guidelines market, to act as a wholesale in a much shorter time period bank channeling term funds and with greater positive to retail financial institutions, economic and environmental and to contribute to the impacts than expected. financial and industrial Made good progress toward development of the country achieving the objectives of its in partnership with the restructuring program. I private sector.  - 16 - Table 6: Studies Included in the Project Studv Purpose Status Imnact of study Study of the A comprehensive review Completed July Led to the identification of manufacturing sector of the manufacturing 1994 the following eight sector was to be priority subsectors for in- conducted. depth study: canned and preserved fruits and vegetables; canned and preserved fish; cocoa, chocolate and sugar confectionery; spinning and weaving; wood and wood based products; plastics; fabricated metal products; and electircal and household appliances. Subsector studies Studies on the eight Completed under In May 1995, the IWG subsectors identified Phase II of the delineated action plans above were to be carried project. among various agencies out to facilitate and identified the need for restructuring of these a "bridging phase" subsectors. These consultancy to translate studies were to be the new concepts and supervised by an Inter- restructuring programs Agency Working Group into concrete actions. (IWG). This work is expected to be completed by December 1995.  - 17 - Table 7A: Project Costs (US$ Million) Estimated Costs: Local Foreign Total Credit Componet 275.0 250.0 525.0 Technical Assistance Project implementation support 0.3 1.5 1.8 Capacity Building 0.5 12.6 13.1 Policy Development 0.2 0.9 1.1 Subtotal 1.0 15.0 16.0 Total 276.0 265.0 541.0  - 18 - Table 7B: Project Financing (US$ Million) Estimated Plan: Local Foreign Total Participating Financial Institutions 55.0 0.0 55.0 Subborrowers 220.0 0.0 220.0 Export Credits 0.0 75.0 75.0 Proposed IBRD Loan 0.0 175.0 175.0 Total Funds for Subprojects 275.0 250.u 525.0 Bilateral Funds for TTA 0.0 15.0 15.0 Local Contribution (DBP, Beneficiaries) 1.0 0.0 1.0 Total funds forTTA 1.0 15.0 16.0 Total 276.0 265.0 541.0  - 19 - Table 7C: Industry Sub-Sector Distribution of Projects Financed ('000 Pesos) As of June 30, 1995 Industry Sub-Sector No. of Amount Ammount Projects Approved Released Apparel Manufacturing 3 150,800 150,800 Appliances & Supplies Manufacturing 1 90,000 90,000 Beverage Manufacturing 5 417,605 369,218 Chemical & Chemical Products 3 144,915 144,915 Electricity, Gas & Water 3 339,726 339,726 Food and Food Products 19 1,704,736 1,554,736 Metal Industry 8 422,765 316,308 Miscellaneous Manufacturing 9 572,000 264,787 Non-Metallic Products Manufacturing 7 788,673 588,673 Paper & Paper Products 2 230,00 230,000 Publishing/Printing 1 19,015 Textile,Cordage & Twine Manufacutring 5 259,709 259,709 Tobacco Manufacturing 1 54,000 54,000 Transportation, Storage & Communications 7 572,329 572,329 Woodcare, Cane & Cork Products 2 155,000 150,600 Total 76 5,921,275 5,085,803  - 20 - Table 7D: Financed Projects Distribution to PFIs ('000 Pesos) As of June 30, 1995 Participating Financial Institution No. of Amount Amount Projects Approved Released All Asia Capital & Trust Corporation 9 352,626 150,414 AB Capital & Investment Corporation 3 101,450 101,450 Allied Banking Corporation 58,000 40,000 Asian Bank Corporation 17,251 4,251 Asiatrust Development Bank 2 31,387 31,387 Bank of Commerce (formerly Boston Bank) 10,000 10,000 Bank of the Philippine Islands 2 53,524 28,524 BPI Leasing Corporation 4 121,814 102,799 Capital Development Bank 19,752 19,752 China Banking Corporation 98,217 85,217 Citibank N.A. (Philippine Branches) 2 128,500 128,500 Citytrust Banking Corporation 1 268,893 250,893 Consolidated Orix Leasing & Finance Corp. 43,725 43,725 Development Bank of the Philippines 1 216,000 216,000 Dharmala Capital Investment & Trust Co., Inc 1 143,387 65,000 Equitable Banking Corporation 16 1,050,359 1,045,959 Far East Bank & Trust Company 6 492,272 472,272 The Intemational Corporate Bank 1 100,547 100,547 Land Bank of the Philippines 3 270,150 257,150 Mercator Finance Corporation 2 32,061 32,061 Metropolitan Bank & Trust Company 18,437 18,437 Philippine Bank of Communication 13,550 13,550 Philippine Commercial Capital, Inc 142,637 54,637 Philippine Commercial International Bank 5 452,153 327,696 Philippine National Bank 1 203,152 185,152 Pilipinas Bank 74,000 74,000 Planters Development Bank 2 39,067 39,067 Planters Development Bank Leasing Corp. 25,752 25,752 Rizal Commercial Banking Corporation 7 590,196 427,196 Solid Bank Corporation 2 79,000 61,000 United Coconut Planters Bank 3 372,433 372,433 UCPB Savings Bank 39,694 39,694 Union Bank of the Philippines 2 241,565 241,565 Urban Development Bank 1 19,717 19,717 Total 76 5,921,275 5,085,803 Commercial Banks 48 4,138,618 3,721,761 Private Development & Thrift Banks 4 129,900 129,900 Leasing & Finance Companies 19 963,455 575,840 Specialized Government Banks 5 689,302 658,302 Total 76 5,921,275 5,085,803  - 21 - Table 8A: DBP Financial Statements Balance Sheets, 1990-1994 (Pesos million) 1990 1991 1992 1993 1994 ASSETS Current Cash and due from banks 1,492 3,390 4,964 9,098 3,818 Investments in securities 3,457 5,622 8,824 6,882 6,374 Accounts recble and others 297 482 702 666 681 Short-term advances & loans 1,835 1,916 2,552 6,636 9,280 Current maturities of term loans 1,544 4,830 7,170 4,909 6,991 Total Current Assets 8,625 16,240 24,212 28,191 27,144 Long Term Loans 7,045 8,634 12,676 23,173 23,883 Provision for doubtful accounts (1,221) (873) (570) (477) (421) Inv. in bonds/equities/debentures 1,230 1,400 2,137 2,079 4,510 Fixed Assets (net) 306 316 507 641 734 Other Assets 1,167 1,294 2,053 3,126 3,670 Total Long-Term Assets 8,527 10,771 16,803 28,542 32,376 TOTAL ASSETS 17,152 27,011 41,015 56,733 59,520 LIABILITIES & STOCKHOLDERS EQUITY Current Deposits 3,960 7,703 12,480 12,950 10,110 Accounts Payable and accr. exp. 2,302 3,031 3,733 2,870 2,637 Short-term borrowings 327 44 97 130 8 Current maturities of LT borrow 244 47 174 266 750 Total Current Liabilities 6,833 10,825 16,484 16,216 13,505 Long-Term Time and special deposits 1,215 2,020 3,005 4,044 52 Deferred credits 199 191 577 744 1,856 Special funds 141 140 140 11 11 Long-term borrowings 1,894 6,295 11,887 25,277 32,567 Total Long-term Liabilities 3,449 8,646 15,609 30,076 34,486 TOTAL LIABILITIES 10,282 19,471 32,093 46,292 47,991 NET WORTH Paid-in capital 2,500 5,000 5,000 5,000 5,000 Retained earnings 4,370 2,540 3,922 5,441 6,529 FOTAL NET WORTH 6,870 7,540 8,922 10,441 11,529  - 22 - Table SB: DBP Financial Statements Income Statements, 1990-1994 (Pesos niillion) 1990 1991 1992 - 1993 1994 INCOME Interest of loans and advances 1,442 2,325 3,162 3,639 4,249 Earnings on funds and securities 631 932 1,296 1,939 1,986 Other income 423 359 800 773 1,020 TOTAL INCOME 2,496 3,616 5,258 6,351 7,255 EXPENSES Interest & other financial charges 526 1,399 2,650 3,731 3,864 Salaries & other personnel expenses 433 454 488 505 748 Other Administrative expenses 345 379 461 543 623 Provision for doubtful accounts 1 18 (36) 4 13 TOTAL EXPENSES 1,305 2,250 3,563 4,783 5,248 Net Operating Income 1,191 1,366 1,695 1,568 2,007 Share in Net Income of Equity Inv. 2 4 4 3 0 1,193 1,370 1,699 1,571 2,007 Provision for Income Tax 55 72 0 0 41 Gross Receipts Tax 86 114 171 241 254 NET INCOME FOR THE PERIOD 1,052 1,184 1,528 1,330 1,712  - 23 - Table 9: Status of Legal Covenants Section Co0iiat Status 6 Description of Coumments --- . e ..... ..........Covenant Loan Agreement wth DBP (Jan uary 23, 1991)_ 3.04 Institutional CP DBP shall implement IDP diligently IDP has been undergoing and promptly. substantial revisions and is being implemented satisfactorily. 4.02(a) Accounts/Audit C DBP shall furnish to the Bank its Though the audited statements audited financial statements within six for all earlier years were delayed, months after the end of each such year. the statements for 1994 have 4.02(b) Accounts/Audit DBP shall ensure that the audit report been received in time and are contains a separate opinion by the satisfactory. auditor on the withdrawals made on the basis of SOE. 4.04 (a) Financial C DBP to maintain debit to equity ratio Ratio was 4.9 as of June 30, of 5 to I or less. 1995. 5.01 Institutional C DBP not to amend its Charter or DBP has been consulting the Statement of Policy so as to affect Bank before introducing such materially and adversely its operations amendments and is responsive to or financial condition. the Bank's comments.. 6.01 Implementation C Before the date of effectiveness, DBP to: (a) adopt and put into affect its Operating Policy Guidelines; and (b) appoint qualified Project Manager. I Guarantee Agreement with GOP (January 23, 1991) 3.01 Cost recovery C GOP to assume the foreign exchange Formula revised to reflect risk and to charge DBP a fee therefor. changed market conditions and implemented. 3.02 Inplementation C GOP to undertake to implement or Action Programs were reviewed cause to implement the Action by supervision missions and were I Programs. found satisfactory. Minutes of eiations (Novem ber 14, 1990) Para 2 Institutional CD DBP and GOP to take all necessary DBP has been transformed into a steps to prepare DBP into a vendible predominantly wholesale bank, form by June 1991. though not by June 1991. Para 3 Institutional C DBP to appropriately staff the Industrial Restructuring Unit. EXCEL Facility Cofinancing Agreement between DBP and The Export-Import Bank of Korea (effective March 1993): US$5.0 million Export-Import Bank of Japan (effective September 1992): Y3,172.5 million Swiss Bank Corporation (effective June 1992): S.Fr.20.0 million Netherlands (effective March 1993): N.L.G. 30.0 million